Bidders for Unilever’s tea business withdrew due to planting issues

Two of the last three bidders in Unilever’s tea division have been reluctant to take over the company’s plantations over concerns over working conditions, people familiar with the matter say.

The tea division, which includes the brands PG Tips and Lipton, was sold this week to CVC Capital Partners for € 4.5 billion.

But the Luxembourg-based buyout group remained the only bidder willing to buy the entire division after Carlyle and Advent International decided they couldn’t deal with the tea plantations in East Africa, who face difficult questions about human rights and fair wages.

Their decision underscores the heightened sensitivity of investors, even in the traditionally intransigent private equity industry, to assets presenting significant environmental, social or governance risks.

Advent International excluded the tea plantations from its final offer, two people familiar with the matter said, while Carlyle gave up entirely days before the submission deadline this week.

Advent was increasingly concerned with accepting responsibility for the health, welfare and safety of thousands of plantation workers, one of those familiar with the matter said. Plantation bosses have power not only over workers’ jobs, but also over their housing and medical care, as sites are often located in remote areas and depend on workers from elsewhere.

The buyout group was particularly concerned that violence could erupt at its Kericho plantation in Kenya following the country’s general elections which are set for August next year. Seven people were killed, 56 women raped and many injured in an attack on the plantation following contested elections in 2007, according to a complaint filed by 218 Kenyans to two UN bodies last year .

A report on the plantations, produced for Advent, “was not pleasant to read,” adds one of the people familiar with the situation. This led the buyout group to exclude plantations from its offering, bidding instead for brands.

Unilever’s Kenyan company is examining allegations it failed to adequately assist workers affected by an attack on its Kericho plantation amid ethnic violence in 2007. More recently, it has come into conflict with the workers. Kenyan workers as it automates the picking, leading to job cuts.

The Kenyan plantation has also been the scene of sexual harassment reported against women workers by some managers. Unilever responded with measures including more female leaders, training and an ethics hotline.

Pay in the tea industry is low. PG Tips, one of Unilever’s brands, claims it pays workers in Kericho about two and a half times the legal minimum farm income in Kenya. This amount was increased to the equivalent of just over £ 53 per month in 2018.

Francis Atwoli, general secretary of the Kenya Central Organization of Trade Unions, said there were still outstanding compensation claims from workers, which could mean that “the potential buyer would have a lot of problems.”

About 8,500 people are employed permanently on Unilever’s plantations in Kenya, Tanzania and Rwanda, and that figure rises to around 16,000 when temporary workers are added in peak season, Unilever said.

Carlyle has long since abandoned the auction because of concerns about “ESG considerations,” said a person familiar with their thinking, regarding concerns about planting conditions.

Blackstone decided early on not to bid for the tea division, in part because of concerns about the treatment of workers, another person added. They described it as “a massive ESG problem”,

CVC arranged for ESG specialists to visit the plantations as part of its due diligence process and decided that Unilever had been a good steward of the company, said a person with knowledge of the matter. CVC declined to comment.

Its negotiators were also reassured by Unilever’s reputation for being proactive on ESG issues and by the company’s membership in the Ethical Tea Partnership, which aims to make the tea industry fairer and more sustainable. environmentally, the person said.

Unilever says it has several programs to address the “social challenges” of tea. He said: “The working conditions are fully in line with global corporate health and safety standards which exceed local requirements, they meet living wage commitments and provide important additional benefits such as housing, free health care. health, nursery and primary education. “

Growth has weakened in Unilever’s tea division, now renamed Ekaterra, which generates € 2 billion in annual sales.

While some buyers were put off by the plantations, several had been drawn to the idea of ​​seizing what they saw as a low-priority unit within a conglomerate that could be reinvigorated by further investment in the sector. marketing and advertising.

Unilever said the price for which CVC agreed to buy the division was 14 times historical earnings before interest, taxes, depreciation and amortization, “a substantial premium over valuations of similar companies.” . . this demonstrates both the quality of the company and the robustness of the sales process ”.

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